Using the EIA policy scenarios and projections of the American Power Act (APA), WRI analyzed the potential additional costs or savings as a result of climate policy. WRI’s analysis covers the potential impact on GDP, and on prices of natural gas, fuel oils, liquefied petroleum gas (LPG), natural gas liquids (NGLs), coal, and electricity. It also explores compliance costs related to GHG emissions and prevailing GHG permit prices. Separately, these outcomes were then compared by Standard & Poor’s to its determination of subsectors’ and companies’ ability to pass along any related costs or preserve related savings.
Overall, most subsectors face only modest compliance and direct energy purchase costs under the EIA scenarios and projections. However, the overall energy-related impact will also depend on a subsector’s indirect energy purchases—that is, the purchase of feedstocks that are produced using energy-related raw materials like natural gas, petroleum products, coal, and electricity.
The price of these feedstocks typically moves with the price of the underlying fuel or electricity used to produce the feedstocks. Based on EIA projections, for subsectors that depend on natural gas-derived raw materials, the cost risk is higher (since natural gas prices are projected to be higher relative to no policy), while for petroleum, coal, and electricity-derived raw materials, there is limited energy-related cost risk (since prices are mostly projected to be lower relative to no policy). There is also a relationship between energy-related costs and compliance related-costs because GHGs may be released during the combustion of energy-derived raw materials, especially in the case of materials derived from coal and petroleum products.